Partnership Accounts Session 3 Appropriation Accounts Practice Activities.

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Presentation transcript:

Partnership Accounts Session 3 Appropriation Accounts Practice Activities

By the end of the session all learners will be able to : 1. Describe these key components of partnership accounts: Statement of profit or loss Partnership appropriation account 2. Prepare the statement of profit or loss appropriation account for a partnership 3. Accurately determine the allocation of profit to partners after allowing for interest on capital, interest on drawings and any salary paid to partner(s) 4. Prepare the capital and current accounts for each partner 5. Calculate the closing balances on each partner’s capital and current accounts, including drawings Partnership Accounts

Appropriation Account

Handout W2S3 Question 1 - Paul & Gill

Paul & Gill Paul and Gill have been in partnership for a number of years sharing the profits in a ratio of 3:2. On 1 July 20X8 they have decided to change the partnership agreement so that Gill will receive a salary of £10,000 per year and for the profits to be split in a ratio of 2:1. During the year ended 30 September 20X8 the partnership profits totalled £45,000. At 1 October 20X7 both partners had credit balance of £2,000 on their current accounts. Paul made drawings of £26,400 during the year to 30 September 20X8 and Gill’s drawings for the period totalled £18,700. Write up the partners’ current accounts for the year ending 30 September 20X8.

Paul & Gill Paul and Gill have been in partnership for a number of years sharing the profits in a ratio of 3:2. On 1 July 20X8 they have decided to change the partnership agreement so that Gill will receive a salary of £10,000 per year and for the profits to be split in a ratio of 2:1. During the year ended 30 September 20X8 the partnership profits totalled £45,000. At 1 October 20X7 both partners had credit balance of £2,000 on their current accounts. Paul made drawings of £26,400 during the year to 30 September 20X8 and Gill’s drawings for the period totalled £18,700. Write up the partners’ current accounts for the year ending 30 September 20X8.

Appropriation Account Financial Year Ending 30 th September 20X8£ Profit for appropriation45,000 Salaries Gill (July – September 20X8) £10,000 ÷ 12 x 32,500 Profit available for distribution42,500 OLD Profit Share to 30/6/20X8 - 3:2 – 9 months31,875 Paul £31,875 ÷ 5 x 319,125 Gill £31,875 ÷ 5 x 212,750 NEW Profit Share to 30/9/20X8 – 2:1 – 3 months10,626 Paul £10,626 ÷ 3 x 27,084 Gill £10,626 ÷ 3 x 13,542 Profit for appropriation £42,500 ÷ 12 months X 9 months October – June (9 months) = £31,875 3:2 Split ONE part = £6,375 Paul gets 3 x £6,375 = £19,125 Gill gets 2 x £6,375=£12,750 Profit for appropriation £42,500 ÷ 12 months = £3,542 p/m July – September ( months) = 3 x £3,542 = £10,626 2:1 split ONE part = £3542 Paul gets 2 x £3,542 = £7,084 Gill gets 1 x £3,542=£3,542

Appropriation Account Financial Year Ending 30 th September 20X8£ Profit for appropriation45,000 Salaries Gill (July – September 20X8) £10,000 ÷ 12 x 32,500 Profit available for distribution42,500 OLD Profit Share to 30/6/20X8 - 3:2 – 9 months31,875 Paul £31,875 ÷ 5 x 319,125 Gill £31,875 ÷ 5 x 212,750 NEW Profit Share to 30/9/20X8 – 2:1 – 3 months10,625 Paul £10,625 ÷ 3 x 27,083 Gill £10,625 ÷ 3 x 13,542

Appropriation Account Financial Year Ending 30 th September 20X8£ Profit for appropriation Salaries Interest on Capital Profit Share

Current Account PaulGillPaulGill

Current Account PaulGillPaulGill Drawings26,40018,700Bal b/d2,000 Salary2,500 Profit Share Oct – June 19,12512,750 Profit Share July - Sept 7,0833,542 Balance c/d1,8082, Balance c/d1,8082,092

Current Account PaulGillPaulGill Drawings26,40018,700Bal b/d2,000 Salary2,500 Profit Share Oct – June 19,12512,750 Profit Share July - Sept 7,0833,542 Balance c/d1,8082, Balance c/d1,8082,092

Question 2 – Able & Baker

Question 2 Capital Account AbleBakerAbleBaker Bank5,000O/Bal20,00015,000 Balance c/d15,00020,000Bank5,000 20,000 Balance b/d15,00020,000

Question 2 Capital Account AbleBakerAbleBaker Bank5,000O/Bal20,00015,000 Balance c/d15,00020,000Bank5,000 20,000 Balance b/d15,00020,000

Question 2 Current Account AbleBakerAbleBaker Interest on Drawings 450 O/Bal Interest on Capital* 875 Salary8000 Balance c/d Profit share Balance b/d *See workings

Question 2 Interest on Capital workings Able20,000Apr – Sept6 months5%500 15,000Oct – March6 months5% Baker15,000Apr – Sept6 months5%375 20,000Oct – March6 months5% Back to slide 17

Question 2 Interest on Capital Able20,000Apr – Sept6 months%500 15,000Oct – March6 months5% Baker15,000Apr – Sept6 months5%375 20,000Oct – March6 months5%

Question 2 Current Account AbleBakerAbleBaker Interest on Drawings 450 O/Bal Interest on Capital* 875 Salary8000 Balance c/d Profit share Balance b/d *See workings

Complete questions 3 onwards